2004 Supreme(SC) 1459

2004(8) Supreme 445
SUPREME COURT OF INDIA
(From Central Excise Customs & Gold (Control) Appellate Tribunal, South Zonal Bench at Chennai)
Arijit Pasayat & C.K. Thakker, JJ.
M/s. Kores India Ltd., Chennai -Appellant
versus
Commissioner of Central Excise, Chennai -Respondent
Civil Appeal No. 4322 of 1999
With
C.A.Nos. 2682-2690 of 2000
Decided on 23-11-2004
Counsel for the Parties :
For the Appellant in C.A. No. 4322/99 and Respondent in C.A.Nos. 2682-90/2000: V. Lakshmikumaran, Alok Yadav and V. Balachandran, Advocates.
For the Respondent in C.A.No. 4322/99 and Appellant in C.A.Nos. 2682-90/2000 : Mohan Parasaran, Additional Solicitor General, Ms. Binu Tamta and P. Parmeswaran, Advocates.

IMPORTANT POINT
Cutting of typewriter/telex ribbons in smaller size and spooling them into on the automatic spooling machines amounts to manufacture, therefore, duty is payable on these ribbons.

Headnote:(i) Central Excise and Salt Act, 1944-Section 11A-Central Excise Tariff Act, 1985-Heading 96.12-Central Excise Rules, 1944-Rule 9(2)-Cutting of type writer/telex ribbons in smaller size and spooling them into on automatic spooling machines-Levy of duty-Challenged-Assessee s case that no process of manufacturing is involved in the concerned transaction-Assessee receives excise duty paid on typewriter/telex ribbons in jumbo rolls of 2.10 mtrs. or more length-In assessee s factory typewriter rolls are fed into cutting and spooling machines wherein ribbons of standard length of 10 mtrs. and 5 mtrs. are cut and spooled into metal spoons-Ribbons in spools are packed and sold by the assessee-Levy of duty on clearance of carbon papers and typewriter ribbons from assessee s factory-Duty affirmed under Rule 9(2) of the Rules read with proviso to sub-section (1) of Section 11A-Further demand of Rs. 2,14,066/- confirmed on seized carbon papers and ribbons-Whether duty was payable on ribbons-(Yes)-Whether the process involved amounted to manufacturing-(Yes).

       Held : Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. Process in manufacture or in relation to manufacture implies not only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to (sic that the) manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. (Para 11)

       The prevalent and generally accepted test to ascertain that there is manufacture is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of the process. There might be borderline cases where either conclusion with equal justification can be reached. Insistence on any sharp or intrinsic distinction between processing and manufacture , results in an oversimplification of both and tends to blur their interdependence. (Para 13)

       Keeping in view the aforesaid principles it has to be examined whether the Collector and CEGAT were justified in holding that manufacturing activities were made out. As appears from the order of the Collector, reference was made to the statements given by two officials of the assessee. Ribbon in rolls of 210 mtrs. and above in length are purchased from M/s. Solar Packaging (P) Ltd., Madras and M/s. Saket Stationery Mfg. Co. Bombay. The said Jumbo rolls were fed into cutting and splitting machines in their premises and ribbons of standard lengths of 10 mtrs. and 5 mtrs. were cut/slit and subsequently would/spooled on the metal spools and 10 such spools are blister packed and sealed with aluminium foil. It was categorically observed that the assessee produced ribbons in spools out of Jumbo rolls and the resultant product is a distinct, identifiable article having distinct name, function and use. The resultant product is also commercially distinct as understood in commercial parlance and has a separate market. Their function and use are also completely different and both products are not inter-changeable. The ribbon in Jumbo rolls cannot be used in a typewriter and similarly a person who requires 30 pieces of spool ribbon will not be satisfied if he is offered Jumbo rolls of equal length. In fact, assessee has a separate unit, machinery and work force to manufacture in spool form. In that view of the matter, it was held that the process involved amounted to manufacturing. (Para 15)

       Before CEGAT it was accepted that there was possibility that manufacturers were operating under exemption available to SSI Units and the goods would have discharged "nil" duty. It was also accepted that since the goods were received from the depots and not directly received from one factory, therefore, any duty (paying documents) were not available. It is to be noted that once the Jumbo rolls are cut into smaller sizes, they completely lost their earlier identity and cannot be used for the same purpose as was done before cutting. In a hypothetical case, even if the smaller sized ribbons are stitched together or fixed together in any manner, there is no possibility of its use as Jumbo rolls. The factual findings recorded that the processing resulted in coming into existence of a commercial product having distinct name, character, and use are on terra firma. No case is made out for interference with the factual findings. (Para 16)

       In order to avail limitation beyond a period of six months and up to a period of five years, in view of the proviso to sub-section (1) of Section 11A of the Act, it had to be established that the duty of excise had not been levied or paid or short-levied or short-paid, or erroneously refunded by reason of either fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. It was observed that something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information which the manufacturer knew otherwise, is required to be established before it is saddled with any liability beyond the period of six months. Whether, in a particular set of facts and circumstances, there was any fraud or collusion or wilful mis-statement or suppression of facts contravention of any provision of the Act, is a question of fact depending upon the facts and circumstances of a particular case. (Para 18)

       In view of the factual position as noted by the Collector and affirmed by the CEGAT there is no substance in the plea that the extended period of limitation was not applicable. (Para 20)

       (ii) WORDS AND PHRASES-Word manufacture -Meaning-Tests to determine nature of an activity.

       Held : In Black s Law Dictionary, (5th Edition), the word manufacture has been defined as, "the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine". Thus by process by manufacture something is produced and brought into existence which is different from that out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. (Para 10)